A general resource for employees and management alike, covering issues old and new in the law of Ontario employment relationships.

Saturday, July 16, 2011

Interlocutory Injunctions and Restrictive Covenants

A recent case from the Superior Court involved a relatively rare event in Ontario: An employer obtained an interlocutory injuntion, relying on a non-solicitation clause, preventing a former employee from soliciting its customers.

In DCR v. Vector, Vector is a company started by a former executive of DCR, Ted Nham, among others. Nham's employment was subject to a non-competition clause that prevented him from doing anything to compete during his employment, and a non-solicitation clause preventing him from soliciting customers for a year after the end of his employment.

Nham provided one month's notice of resignation on July 20th, 2010, to be effective August 20th, 2010. The judge doesn't survey the evidence in much detail, but points out that Nham's evidence is largely undermined by the fact that he appears to have registered Vector's domain name on July 26th, 2010. (Though, quite frankly, if the employer is putting much stock in that fact alone as offending the non-comp clause, I would doubt the viability of that claim. Registering the domain name is purely preparatory. Preparatory actions aren't considered to violate any fiduciary duty, and I would expect the same thing to apply here. Ordering stationery, entering into discussions to rent a facility, etc., are not actually acts of competition. If I'm entitled to set up a competing business on August 20th, 2010, I'm entitled to take every step necessary to be able to actually open my doors to the public on that date.)

The employer became aware that Vector was soliciting its clients (using information taken from DCR) and brought a motion for an interlocutory injunction, which was obtained (presumably on an ex parte basis, without notice to the defendants) on April 12th, 2011, preventing Vector from soliciting DCR's customers. When an injunction is obtained ex parte, it has to be for a short period of time, until the parties can all show up in Court to argue the case. Vector filed affidavits, and DCR wisely cross-examined on the affidavits, and the motion ultimately wasn't heard in full until June 20th, 2011, but the injunction was continued until that time, and from there until the release of this decision on July 13th, 2011.

The judge accepted that the non-solicitation clause was valid and enforceable, finding its terms reasonable, and granted the injunction. However, the judge did not see any reason to impose fiduciary obligations in excess of those contained in the written contract, and so the injunction will expire after August 19th.

Given that the evidence is that Vector doesn't actually have any customers yet, that's actually kind of a loss for the plaintiff.

Commentary

The judge's decision to terminate the injunction after August 19th minimizes the effect of the fact that the defendants apparently misappropriated DCR's customer lists. There is a line of cases involving misappropriated customer lists, starting with 1259695 Ontario Inc. v. Guinchard in 2005, in which abuse of misappropriated customer lists warrants long-term continuation of such injunctions.

The trouble with this decision is that it appears that Vector, a few weeks from now, will be free to pull out DCR's customer list again and start sending out a new round of solicitations.

*****

This blog is not intended to, and does not, provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.